Does the federal Fair Debt Collection Practices Act (the FDCPA) apply to communications between a debt collector and its vendors? And, is the FDCPA a consumer privacy statute? In an apparent issue of first impression, the Eleventh Circuit answered a resounding yes last week.
In an April 21, 2021 opinion: Richard Hunstein v. Preferred Collection and Management Services, Inc., the Eleventh Circuit ruled that a debt collector’s transmittal of a consumer’s personal information to a dunning vendor was a third-party communication in violation of 15 U.S.C. § 1692c(b).
This opinion has the potential to upend the way debt collectors – including financial institutions that may be considered a debt collector under the FDCPA – run their businesses. At least in the short term, this opinion will likely result in a new wave of FDCPA class action lawsuits, particularly in the Eleventh Circuit (Alabama, Florida, and Georgia).
The facts in Hunstein are a common story. The defendant debt collector, Preferred Collection and Management Services, electronically transmitted data concerning Hunstein’s debt—including his name, his outstanding balance, the fact that his debt resulted from his son’s medical treatment, and his son’s name—to a third-party commercial mail vendor called Compumail. Compumail then used the data to create, print, and mail dunning letters to the consumer.
The consumer sued Preferred Collection, claiming that its transmittal of the consumer’s private information to Compumail was a third-party communication in violation of FDCPA section 1692c(b), which provides that:
[W]ithout the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector. [Emphasis added.]
In reversing and remanding the trial court’s 12(b)(6) dismissal of Hunstein’s claims, the Eleventh Circuit reasoned that the transmission of Hunstein’s information was a communication “in connection with the collection of any debt” and that Compumail was a third party. Thus, the court reasoned that Preferred Collection violated section 1692c(b) of the FDCPA. Communication from a debt collector to its vendor, at least in the Eleventh Circuit, is now actionable for money damages. And, since no other circuit has taken up this issue, the Hunstein opinion will be persuasive authority in all district courts across the country for the near future.
It is important to note the Eleventh Circuit determined Hunstein was able to show Article III standing because he could establish a concrete injury through a bare, procedural statutory violation. This is the case even though the Court determined that Hunstein did not allege a tangible harm or a risk of real harm. Rather, the intangible harm Hunstein alleged – an invasion of privacy through public disclosure of private facts – is an injury-in-fact that provides standing to sue under section 1692(b).
It was “not lost” on the three-judge panel that “[their] interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry.” The panel recognized that “[their] reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost.” And, the panel even recognized that the practical effect of their opinion may well be for naught – “that those costs may not purchase much in the way of ‘real’ consumer privacy, as [they] doubt that the Compumails of the world routinely read, care about, or abuse the information that debt collectors transmit to them.” Even so, the panel concluded, it is their job to “interpret the law as written, whether or not [they] think the resulting consequences are particularly sensible or desirable.”
It remains to be seen what type of damages the lower court on remand will determine this violation warrants (unless, of course, the parties settle), and the broader implications of Hunstein will be borne out in the coming months. Long-term, however, debt collectors – and any entity who may fall within the FDCPA’s definition of a debt collector – should consider heeding the Eleventh Circuit’s advice and bring in-house the debt collections services they have, up until now, contracted out. Perhaps Congress will amend the FDCPA to make room for third-party vendors. Or, perhaps Preferred Collections will appeal to the Supreme Court, which will put the matter to rest. And, with the greatly-anticipated Regulation F just months away from becoming effective, and with it a bona fide error defense for sending inadvertent disclosures to third parties, this raises the important question of whether the FDCPA will expand and become an oft-relied-upon consumer financial privacy statute by the CFPB and the plaintiffs’ bar. Until then, though, debt collectors and lenders who meet the definition of a debt collector in all jurisdictions need to take affirmative steps to implement policies and procedures to avoid (or at least mitigate) class-action FDCPA cases based upon their continued (and prior) use of third party debt-collection vendors.
Over the past several months, the Adams and Reese Crisis Response and Preparedness Team has sent out various alerts regarding the outbreak of COVID-19 and how it may affect the way in which you do business. We have compiled a list on our Crisis Response and Preparedness page.